Or a Naughty Step special edition.

Another Naughty Step post? So soon? Well, yes. I have no control over how these things crop up and not only does this case feature some jaw droppingly bad behaviour, the demise of a whole business legal model and some innovative law, it features Nearly Legal’s own Francis Davey in a starring role (and one that is entirely angelic, I hasten to add, as if it could be otherwise). Granted there is the drawback that the case has nothing to do with  housing law, but that minor hitch aside, how could I possibly resist? Francis, I should point out, has had nothing to do with this post.

So, on to the götterdämmerung of ACS:Law, Andrew Crossley and Media CAT. in Media CAT Ltd v Adams & Ors [2011] EWPCC 6.

A little back story, in case you hadn’t noticed the short and less than glittering career of ACS:Law.

ACS:Law had sent out tens of thousands of threatening letters using names and addresses obtained from ISPs under Norwich Pharmacal orders, based upon Media CAT’s apparent identification of certain IP addresses having been involved in the file sharing of, amongst other things, such cultural monuments as ‘5 Linsey Dawn McKenzie Films on Tape’, which (I am assured by other people, obviously) contain some extremely energetic nudity for less than educational purposes.

The letters demanded payment of £495 for damages, “ISP administration costs (and its legal costs where applicable), a contribution to our clients legal costs incurred to date and all additional costs”, (no breakdown given) and threatened proceedings, citing the case of Polydor Ltd v Brown [2005] EWHC 3191 (Ch) – a peer to peer (P2P) filesharing copyright case –  in support.

These ‘letters of claim’, it turns out had some drawbacks. Well, a lot of drawbacks. To begin with, the Patents County Court in the person of HHJ Birss QC, stated:

The letters assert Media CAT is a copyright protection society (which it is not) and the exclusive territorial licensee of rights granted by the copyright owner (which it is not). The copy of the letter of claim before me names Darker Enterprises Ltd as the “Original Rights Owner”. The IP address information is provided as well as a spreadsheet sent from the ISP identifying the individual. The letter would be understood by many people as a statement that they have been caught infringing copyright in a pornographic film, that Media CAT has evidence of precisely that and that a court has already looked into the matter (a copy of the Order of Chief Master Winegarten is provided [the Norwich Pharmacal order. NL]). They may think that their own ISP has decided that they are indeed infringing. The letter states that “our client’s evidence shows you are responsible for committing one or more of these infringements whether directly yourself or by you authorising (inadvertently or otherwise) third parties to do the same.” […]

The letter ends with a statement that “this letter complies with the Code of Practice for Pre-Action Conduct in Intellectual Property Disputes (January 2004) a copy of which is available on our website”. That sounds official but there is in fact no formal Pre-action Protocol for Intellectual Property. The CPR includes a Practice Direction – Pre-action Conduct which applies generally and 9 specific pre-action protocols are in force which deal with particular areas of practice. Intellectual Property cases are not one of those areas.

Note that the letter alleges direct responsibility either in person or  by inadvertent or otherwise authorisation of a third party. We’ll come back to this.

Note also Media CAT’s position here. Contrary to the assertions in the letters, Media CAT only had a bare contractual agreement with the original rights holder, or possibly exclusive licensees – it is not clear. The Court describes the peculiar status of Media CAT in this way:

So who is Media CAT? At best it is a company with a contract which gives it “all rights necessary to allow [Media CAT] to inquire claim demand and prosecute through the civil courts where necessary any person or persons identified as having made available for download a film for which [an agreement] has expressly licensed”. The expression quoted comes from clause 1.1.1 of an agreement between Media CAT and a company called Sheptonhurst Ltd dated 19th November 2009. According to the agreement Sheptonhurst are the owners of copyright in the films (clause 2.2) and the agreement purports to give Media CAT the right I have described. It also purports to give Media CAT the “sole and exclusive right to demand collect and receive all revenues in respect of illegal file sharing” on the terms of the agreement. The extent to which it is legally possible for a company like Media CAT to acquire the rights it claims in relation to copyright is open to question and has not been tested in court.

This contractual assingment gave rise to accusations of champerty by the Defendants, “in that it was an assignment of a bare right to litigate and contrary to public policy”.

Tens of thousands of letters, at a prospective £495 per letter. The division of spoils was also contractually agreed. 15% to Media CAT, 20% to the rights holder and, wait for it, 65% to ACS:Law.

The Court expresses a certain puzzlement as to where all the claims were – out of tens of thousands of letters sent prior to August 2010, it was extremely odd that only 27 claims – the subject of the hearing – had been brought. But then, in partial satisfaction of its own puzzlement, towards the end of the judgment, the Court observes:

Media CAT and ACS:Law have a very real interest in avoiding public scrutiny of the cause of action because in parallel to the 26 court cases, a wholesale letter writing campaign is being conducted from which revenues are being generated. This letter writing exercise is founded on the threat of legal proceedings such as the claims before this court.

The information annexed to Mr Batstone’s letter refers to ACS:Law having “recovered” £1 Million. Whether that was right and even if so whether it was solely in relation to Media CAT or other file sharing cases I do not know. Simple arithmetic shows that the sums involved in the Media CAT exercise must be considerable. 10,000 letters for Media CAT claiming £495 each would still generate about £1 Million if 80% of the recipients refused to pay and only the 20% remainder did so. Note that ACS:Law’s interest is specifically mentioned in the previous paragraph because of course they receive 65% of the revenues from the letter writing exercise. In fact Media CAT’s financial interest is actually much less than that of ACS:Law. Whether it was intended to or not, I cannot imagine a system better designed to create disincentives to test the issues in court. Why take cases to court and test the assertions when one can just write more letters and collect payments from a proportion of the recipients?

But we are getting ahead of ourselves.

ACS:Law and Media CAT did indeed issue some cases. Between August and November 2010, 27 claims were issued in the Patents County Court.

In the meantime, ACS:Law suffered a denial of service attack, which knocked its webserver over. When the server was being put back up, it exposed to outside, public view not only ACS’ own email archives, but an unencrypted file containing thousands of names and addresses of ‘targets’, with the alleged infringements detailed. Quite what this highly sensitive information was doing on the same server as the public website is now a question for the Information Commissioner’s investigation into the breach of the Data Protection Act.

Oh and the threatening letters had provoked an SRA investigation, which has led to ACS:Law and Andrew Crossley facing an SDT proceeding.

Back to the cases… In November 2010 ACS:Law/Media CAT took the ‘almost unheard of’ step of applying (without notice) for default judgment via a ‘Request for Judgment’ (RFJ) in 8 cases. In three of these cases a defence had been filed, so the applications were simply rejected. The remainder were rejected on the papers as being unsuitable for complex copyright cases. The Court also raised some concerns with the presentation of the Particulars of Claim (Media CAT v A [2010] EWPCC 017). In them Media CAT is not presented as a copyright protection society, or as an exclusive licensee. The Court in Media CAT v A noted that “the claimant did not appear to have the right to sue without joining the copyright owner under s102 of the 1988 [Copyright Designs and Patents] Act”. What is more, the Particulars ” also mentioned unsecured internet connections and tied in with that alleged infringement by the individual defendant either by infringing themselves or “by allowing others to do so””. The problem with that being that there is no decided case which deals with unsecured internet connections in the context of liability for copyright infringement.

“The point about “allowing” is that the word used in s16(2) of the 1988 Act is “authorising” not “allowing”. They are by no means the same and the difference may be very important if the allegation is about unauthorised use of an internet router by third parties”.

So no default judgments granted and some major questions raised by the Court about the right of the Claimant to sue, alone at least, and the basis in law of the pleaded claim. Oh dear. And, in the present hearing, the Court is quite prepared to come to the conclusion that the difference between the letter of claim and the particulars of claim is such as to mean that “the letter of claim does misrepresent Media CAT’s standing to bring proceedings. The letter also relies on the untested point about IP addresses.”

And then there were the submissions of (our own) Mr Davey for a Defendant, that “the technique used in this case to link IP address, film and P2P network does not establish that any infringement has taken place at all” (which submissions were not simply taken as true – that would be a matter for trial). If this was so then the letter of claim could be taken to materially overstate Media CAT’s case. In any event the letters of claim materially overstated the merits of Media CATs approach to showing that “one way or another” the recipient was liable for infringement.

Bad though their position might have seemed after the refusal of the default judgments, they were just about to get much worse for Media CAT and ACS:Law. In December, following letters to the Court by some individuals, including one Defendant in person who alleged he had not been served with the Claim, wished to defend the case and described the Claimant’s approach as ‘extortion’, (see Media CAT v Billington [2010] EWPCC 018 ), the Court ordered a hearing in all 27 cases on 17 January 2011, noting as it did so that the Claimant had taken no steps to seek a CMC or otherwise progress the cases.

On 13 January, ACS:Law filed 27 notices of discontinuance.

Over the next few hearings, culminating in this judgment, things went completely pear shaped for the Claimant. The Court was deeply suspicious that the Claimant was attempting to avoid judicial scrutiny of the claims. It was open to them to join the rights holders and to amend pleadings to try to overcome the deficiencies, so why discontinue?

The Claimant’s protestations that it was withdrawing to reconsider and reformulate its whole case were somewhat blown out of the water by evidence from the solicitor forone of the Defendants. On the very next day after the notices of discontinuance were filed, her client:

was sent a letter from an entirely new entity called GCB Ltd. In the letter they describe themselves as “agents instructed by Media CAT in relation to infringement of the Work”. The letter was an aggressive re-assertion of Media CAT’s demand for damages for copyright infringement, including another threat of court proceedings, which was being sent almost simultaneously with the attempt to discontinue the existing proceedings and when Media CAT were stating to the court that the reason they wished to discontinue is that they needed to rethink and reformulate their case. The letter said that ACS:Law had in effect transferred the handling of the case to GCB Ltd. Enclosed with the GCB letter was a copy of a (generic) letter from ACS:Law dated 14^th January 2010 confirming that GCB were indeed undertaking this task and that ACS:Law’s role in future would be confined to focussing on issuing court proceedings. The GCB Ltd letter also had various annexes. These included a form to fill in with payment details for the recipient to pay GCB Ltd in various ways (by credit card etc.), a copy of the judgment of Collins J in the Polydor case and a copy of a BBC news report from the internet from 2008 of a case about a defendant called Barwinska (see below).

[The solicitor’s] witness statement ended with another bizarre piece of evidence. On 18th January [she] called the telephone number on the GCB letter. The letter describes the number as their “payment centre”. There was a recorded message on the line stating “If you have received a letter from GCB Ltd please disregard this letter as GCB is no longer pursuing the matter stated in the letter.”

Faced with this, the Claimant’s Counsel (after urgent instructions) admitted (inter alia) that:

GCB Ltd had embarked on a campaign of reasserting Media CAT’s rights at the same time that Media CAT was telling the court that it wanted to discontinue the cases because it needed to reconsider its case. The only mistake was to have written to one of the defendants then before the court. From the tenor of the submissions it is probable that many such letters were sent out. Apparently former employees of ACS:Law were or had been employees of GCB Ltd.

The Court noted that the reference to Barwinska in the GCB letter was misleading. It was described as a ‘proper IP judgment’ on a file sharing case. It wasn’t. It was a default judgment made at Central London CC, not the Patent Court. That rather settled any argument over the Claimant’s purposes in attempting to discontinue. The lucrative letters were still being sent and were as misleading as before. Mr Crossley maintained that GCB had nothing to do with him, but that in any event GCB had given up doing this work. The Court was not impressed.

The actions of Media CAT via GCB Ltd sheds light on Mr Crossley’s first statement dated 21st January 2011. At paragraph 7 he addressed the point about whether cases subject to the notices of discontinuance will be reissued. He stated that some cases had settled and would not be reissued and that how the claimant is going to deal with the other cases will be a matter for further consideration by it. One might think a claimant (and their legal adviser) who was giving their claim serious further consideration before perhaps starting it afresh in a different form or dropping it altogether, would certainly not assert the very same claim against other people not (yet) before the court. The GCB episode shows that Mr Crossley’s client had every intention of doing precisely that and that ACS:Law were perfectly well aware of it. It is very difficult not to draw the inference that this was nothing more than a last ditch attempt to make some money from the letter writing exercise.

But could the Claimant discontinue? Recall that the Court had already taken the view that  s.102 of Copyright Designs and Patents Act 1988 meant that Media CAT as claimant could not ‘proceed with the action’ without joining a copyright holder. A notice of discontinuance was a step in the action. Accordingly it was not open to Media CAT to discontinue without having first joined a rights holder. The notices served were an abuse of process and were set aside. In any event the notices involved an unwarranted collateral benefit for the Claimant – avoiding judicial scrutiny of their money generating but very iffy claims.

So, Media CAT, and indeed ACS:Law were stuffed. They clearly did not wish to proceed with the claims, given the Court’s view of the legal and evidential difficulties facing them, as this could ruin the whole business if the cases went against them. They could not discontinue. But could they (or GCB) continue sending out the letters of claim from the Norwich Pharmacal disclosure they already had (it being pretty clear that they weren’t going to get any more Pharmcal orders granted)?

The Court was prepared to entertain the prospect of making an order restraining Media CAT from sending any more of the ‘letters of claim’, which is quite an extraordinary prospect. Whether there was a jurisdiction to do so was not decided, as, in the event, the order was not needed, for reasons we’ll come to

In the second of what appear to have been increasingly bizarre witness statements and behaviour, Mr Crossley denied any ulterior motive to the discontinuances, and stated that ACS:Law were stopping all file sharing work because he had received abuse and death threats, his children had received ‘inappropriate communications, all 16 staff had been made redundant and he had been referred to the SDT and wished to concentrate on fighting that case. “He decided to cease this kind of work due to the immense hassle it has caused him and his family. Otherwise he stands by the letter of claim and would have been keen to continue litigation.”

Without diminishing the significance of such threats, the Court pointed out that this was not relevant to the present cases. We might mention out that Mr Crossley has self-confessedly been subject to considerable abuse for quite some time – see this Telegraph article – and it didn’t seem to have much of an effect on his practice. Anything involving his children is utterly different, of course.

After the final hearing, though, the Court was notified by Mr Crossley

that Media CAT has ceased trading as it has become insolvent and that ACS:Law is no longer instructed save to perfect consent orders already notified to the court. The letter concludes with a statement that the claimant has asked Mr Crossley to notify the court that it has ceased all activities and will not at any time in the future be sending letters or pursuing anyone in relation to the alleged infringements of copyright. Also ACS:Law will close permanently on 31st January 2011 and there will be no successor practice.

In view of this, no injunction to stop the letters would be made and the Defendants’ submissions on wasted costs orders weren’t read. (The Defendants had raised both indemnity costs against Media CAT and wasted costs against ACS:Law during the hearing, submitting that “[ACS:Law] were responsible for pursuing a case which they knew or ought to have known was bound to fail (because the agreement cannot give Media CAT the right to sue). He submitted that ACS:Law’s conduct brought the legal process and the solicitors profession into disrepute”. This wasn’t dealt with at the time as the Claimant and ACS:Law had not had time to deal with the accusation. As the claims are now, effectively, in limbo, Media CAT apparently insolvent and ACS:Law officially no longer in existence, further costs orders may be unlikely… There is another hearing in a few weeks, to see if the rights holders apply to be joined. If they don’t, then a strike out application is likely. Seeking costs against Media CAT is unlikely to be a realistic option if it is insolvent. Wasted costs against ACS:Law – or rather Crossley as sole principal – may be an option, but needing an application, a show cause order and a further hearing.)

The whole grubby business has collapsed. It leaves behind it some serious questions, both over the extraordinary business arrangements involved – the 65% of money from the letters going to ACS:Law – and for the operation of the file sharing provisions of the Digital Economy Act.

Clearly the business arrangements provided a perverse incentive for the solicitors not to advise the client to issue proceedings, particularly if, as alleged by the Defendants, when the few cases were brought, “they were responsible for pursuing a case which they knew or ought to have known was bound to fail” (because the agreement cannot give Media CAT the right to sue). And the agreement didn’t cover litigation costs, for which, apparently, there was a separate retainer.

Why bring the cases at all?

First, there are the apparent tactics. Out of the 27 cases, there were 8 applications for default judgment. The other cases were not actively pursued, it seems (certainly that was the Court’s view). If default judgments had been obtained, the GCB letter example suggests that these would have been portrayed as ‘successful judgments’ pour encourage les autres.

Second, the ACS:Law emails that were made public after the hack suggest a concern that the letters, by themselves, were going to produce diminishing returns. It was also a question whether they would be able to obtain further Norwich Pharmacal orders to provide further fodder. We should recall that there was an increasing amount of publicity and condemnation of ACS:Law’s tactics in the form of the letters.

Indeed Which? had weighed in, much to Mr Crossley’s annoyance. He described Which?’s legal chief, Deborah Prince (a solicitor) as “a complete idiot” in one email, considered defamation proceedings (!) and in another email considered “a complaint to the SRA that this lady [Prince] – who is a solicitor – is bringing the profession into disrepute.” (The irony of such, given that Mr Crossley had accumulated some 500 complaints to the SRA against him at about this time, appears to have escaped him).

It all also appears that Mr Crossley had received advice from a senior barrister that it would make tactical sense to switch from the emphasis on letter writing, which would have diminishing returns and exacerbate the situation, to bringing claims against those who had not settled.

So it may be – and this is pure conjecture, but would make sense in terms of the business practice as far as we know it – that a few cases were issued, and crucially default judgments sought, to shore up against the likelihood of diminishing returns on the letters of claim. Letters of Claim, lest we forget, which were sent on behalf of a claimant who had no independent right to pursue copyright proceedings.

Certainly, there was considerable pressure to sustain the cash flow. Other emails that were downloaded when they were put on public view appear to show Media CAT demanding payment on August 2010 amongst others involved demanding payment.

Mr Crossley was apparently concerned that if the income from the letters died up, he’d go bankrupt. It would appear that that would attract little sympathy.

The business arrangement then surely has to be a concern, and possibly an ongoing one for the future ABS structures, where such a form of ‘profit share’ would prospectively have a huge impact on the solicitors’ view, advice and actions in a matter. They become a wholly interested party.

But it may be that ACS:Law has a legacy, albeit precisely the opposite of that envisaged by Mr C. What became clear in the Patent Court hearing is that a simple correlation of infringement by recorded IP address cannot stand. There are many issues – of the quality of data gathering, of the quality of IP recording, of the technical basis by which IPs are logged even if there is no download, let alone upload, beyond a few bytes, of IP spoofing, and of the responsibility for an unsecured (or indeed hacked) wireless network – that will have to be tested at court.

The conclusion has to be that the simple provision in the Digital Economy Act either can’t stand or will be utterly unworkable in practice.  The DEA is already facing Judicial Review and we’ll see what comes out of that, but it may well not be the only form of challenge.